Creating a Contingency Fee Agreement

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

When it comes to the legal process, contingency fee agreements are an essential consideration for attorneys and clients alike. Here at Genie AI, we’d like to offer some insight into why these agreements matter and how you can ensure you’re well-prepared when dealing with them.

Put simply, contingency fee agreements help lawyers manage the financial risks associated with taking on a case. Instead of charging a flat fee for all of their time spent working on the case, attorneys will instead work on a contingent basis - only getting paid if they win or secure a settlement. This serves to protect lawyers against potential losses should the outcome not fall in their favour.

For clients, this arrangement offers a great opportunity to have their case heard without having to pay out of pocket. This is especially beneficial for those who may not have the resources available upfront to cover costly legal fees - allowing them peace of mind that they won’t be left with a hefty bill should things not go as planned.

But when it comes to setting up such an agreement there’s several aspects both sides must take into account: each party needs be in agreement about all terms; this also includes discussion around how much gets paid out upon completion and/or successful settlement; and reaching consensus as to what percentage is awarded in the event either party wins the case or secures compensation.

In short, contingency fee agreements are an important part of any legal system and should be taken seriously by both parties involved - attorneys and clients alike - in order for everyone involved to feel adequately protected from possible losses or financial implications should matters not turn out as expected. At Genie AI, our community template library provides millions of datapoints which instruct our AI-based software on what constitutes market-standard contingency fee contracts - so why not read on below for our step-by-step guidance? Or head straight over now and access our template library today!

Definitions

Contingency Fee Agreement: A contract between an attorney and a client in which the attorney agrees to represent the client in exchange for a percentage of the recovery in a legal dispute (typically if the client wins the case).
Scope of Agreement: The specific services that the attorney will provide and the tasks that the attorney will be responsible for, as well as the type of case and the jurisdiction in which the case will be handled.
Payment Structure: How the fee percentage will be determined and the timeline for when the payment is due and when the client will receive the payment.
Rights and Responsibilities of each Party: The obligations of the attorney and the rights of the client in regards to the agreement.
Legal Requirements: The legal requirements for the agreement to be legally binding, such as being in writing and signed by both parties.
Documentation of Agreement: The filing of the agreement with the court or other relevant legal bodies in order to provide evidence in the event of a dispute.
Risk Assessment: Identifying and developing a plan for mitigating any potential risks associated with the case.
Termination of Agreement: The grounds for terminating the agreement and the documentation required for it to be legally binding.
Dispute Resolution Process: Identifying potential methods for resolving any disputes that may arise and establishing a timeline for resolution.

Legal-Speak or Jargon:
Contingency Fee Agreement: A contract between an attorney and a client in which the attorney agrees to represent the client in exchange for a percentage of the recovery in a legal dispute (typically if the client wins the case).
Scope of Agreement: The range of tasks, services, case type and jurisdiction that the attorney will provide.
Payment Structure: How the fee percentage will be determined and when the payment is due.
Rights and Responsibilities of each Party: The obligations of the attorney and the rights of the client related to the agreement.
Legal Requirements: The rules that must be followed for the agreement to be valid in court.
Documentation of Agreement: The filing of the agreement with the court or other relevant legal bodies.
Risk Assessment: Identifying and developing a plan for potential risks associated with the case.
Termination of Agreement: The conditions for ending the agreement and the documents needed for it to be legally binding.
Dispute Resolution Process: Identifying methods for resolving any disputes that may arise and setting a timeline for resolution.

Contents

1. Definition of a contingency fee agreement
2. Overview of benefits and drawbacks of a contingency fee agreement
3. Definition of the scope of the agreement
4. Payment structure
5. Determining the fee percentage
6. Establishing the payment timeline
7. Rights and responsibilities of each party
8. Requirements for the attorney
9. Rights of the client
10. Requirements for the agreement to be valid
11. Legal requirements
12. Documentation of the agreement
13. How to craft an agreement
14. Outlining the terms
15. Negotiating the terms
16. Finalizing the agreement
17. Risk assessment
18. Identifying potential risks
19. Developing a risk mitigation plan
20. Termination of the agreement
21. Grounds for termination
22. Documenting the termination
23. Dispute resolution process
24. Identifying potential dispute resolution methods
25. Establishing a timeline for resolution
26. Documenting the dispute resolution process

Get started

Definition of a contingency fee agreement

• Understand the basic definition of a contingency fee agreement: a fee arrangement in which a lawyer receives payment only if the case is successful, and the payment is a percentage of the amount recovered from the legal action.
• Research into the state and federal laws concerning contingency fee agreements to ensure compliance.
• Review the American Bar Association’s Model Rules of Professional Conduct to ensure the agreement is ethical and compliant.
• Familiarize yourself with the types of contingency fee agreements available, such as flat fees, hourly fees, and success fees.
• Once you have an understanding of the definition of a contingency fee agreement and the relevant laws and regulations, you can check this step off your list and move on to the next step.

Overview of benefits and drawbacks of a contingency fee agreement

• Understand the advantages and disadvantages of a contingency fee agreement
• Consider the potential risks associated with such an agreement
• Weigh the potential benefits of a contingency fee agreement against the risks
• Understand how the agreement will be structured and the specific terms, including how much you will pay and how the fee will be calculated
• Decide if a contingency fee agreement is right for your particular situation
• Once you have a good understanding of the benefits and drawbacks, you can check this step off your list and move on to the next step.

Definition of the scope of the agreement

• Clarify the scope of the services that the lawyer will provide, including what tasks they will complete and when they will be completed by
• Outline the geographic area in which the services will be provided
• Set forth the length of the engagement and any required termination provisions
• Provide a description of the legal matter that the lawyer will be representing the client in
• Establish and define the roles and responsibilities of the lawyer and client
• When complete, the scope of the agreement should provide a comprehensive understanding of the services that the lawyer is expected to provide
• You will know when you have completed this step when you have written out and agreed upon all of the services that the lawyer will provide to the client

Payment structure

• Decide how the fee will be paid: hourly, contingency, some combination of the two, or a flat fee
• Establish a payment schedule if an hourly fee is agreed upon
• Determine the contingency fee percentage if that is the agreed upon payment structure
• Specify how expenses associated with the case will be handled
• Make sure to include a clause that outlines how the fee will be prorated if the case is settled or dismissed prior to trial
• Once all of the payment structure details have been discussed and agreed upon, the payment structure section of the contingency fee agreement can be finalized and signed.

Determining the fee percentage

• Set the fee percentage, usually between 25%-50% of the total amount of the award.
• The fee percentage should be based on a variety of factors, such as the complexity of the case, the amount of work required, and the amount of money at stake.
• Consider the amount of risk you are taking on in the case, as well as the amount of work you will be doing.
• Decide on the fee percentage that is fair for both parties, taking into account all of the above factors.

Once you have determined the fee percentage, you can proceed to the next step: Establishing the payment timeline.

Establishing the payment timeline

• Establish a timeline for payment of the contingency fee.
• Consider whether the timeline should be based on a certain event, such as a settlement or verdict, or a certain period of time such as six months.
• Specify in the agreement when the client must make payments, such as within five days after receipt of a settlement check.
• Include language in the agreement that requires payment of interest on late payments, if applicable.
• Once the payment terms are set, the timeline for payment of the contingency fee has been established.

Rights and responsibilities of each party

• List out each party’s rights and responsibilities in the agreement
• Describe in detail how the lawyer and the client will work together
• Ensure that each party understands and agrees to their rights and responsibilities
• Make sure the agreement includes a dispute resolution clause
• When you are both satisfied with the agreement, you can move on to the next step.

Requirements for the attorney

• Research the state and local rules and regulations that govern contingency fee agreements
• Consult with a lawyer familiar with the state and local regulations surrounding contingency fee agreements to ensure that all requirements are met
• Draft an agreement that complies with state and local regulations
• Ensure that the agreement outlines the requirements the attorney must meet in order to receive a contingency fee
• Include the attorney’s name, address, and contact information in the agreement
• Include the client’s name, address, and contact information
• Specify the amount of the contingency fee, or a formula for calculating it
• Include any other information required by your state or local regulations
• Have both parties sign the agreement

You can check this off your list and move on to the next step when you have a contingency fee agreement that meets the requirements of the state and local regulations.

Rights of the client

• Understand the client’s rights in the agreement, such as the right to terminate the agreement at any time, the right to approve the final agreement, and the right to receive a copy of all communication between the attorney and the client.
• Review the client’s rights, understand them, and make sure they are included in the agreement.
• Once the client’s rights have been reviewed and understood, you can move on to the next step of the guide.

Requirements for the agreement to be valid

• Establishing the scope and purpose of the agreement
• Clearly detailing the terms of the agreement, including the contingency fee percentage
• Identifying the client, lawyer, and other relevant parties
• Specifying the services to be provided by the lawyer
• Establishing the time period for the agreement
• Establishing the payment and billing terms
• Establishing the termination clause
• Ensuring that the agreement is compliant with all applicable laws
• Have all applicable parties sign the agreement

Once all of the above requirements have been met, the agreement will be valid and ready to be used.

Legal requirements

• Ensure that the agreement complies with applicable state and federal law
• Confirm that the agreement complies with the ethical rules of the state bar
• Verify that the agreement does not contain any provisions that could be considered unenforceable
• Once all the legal requirements have been addressed, you can move onto documenting the agreement.

Documentation of the agreement

• Draft and sign the agreement - both parties need to sign before the agreement is completed
• Get a copy of the signed agreement to the client - this confirms that the agreement is valid and in place
• File a copy of the signed agreement - this will ensure that you have proof of the agreement if needed in the future

How to craft an agreement

• Determine the details of the agreement including the fee structure, payment terms, and any additional services
• Seek the advice of a lawyer if needed to ensure you are properly protected
• Outline the agreement in a clear and concise manner
• Ensure the agreement meets the requirements of your state
• Have both parties sign the agreement
• When the agreement is signed by both parties, you can move on to the next step.

Outlining the terms

• Identify the parties involved – the lawyer and the client
• Outline the scope of the services to be provided by the lawyer
• Set out the fee structure – including the fee percentage and any other fees to be paid
• Specify the payment terms and timeline
• Describe the process for resolving disputes
• Include a clause for termination of the agreement
• Sign and date the agreement

Once you have outlined the terms of the agreement and both parties are in agreement, you can check this off your list and move on to the next step of negotiating the terms.

Negotiating the terms

• Discuss the fee structure with the client and come to an agreement
• Determine how much the client will be charged for the attorney’s services and when payment is due
• Discuss any retainer fees that may be required
• Decide on a payment plan, if applicable
• Make sure the agreement is in writing and both parties have signed it
• Once the terms have been agreed upon, you can move on to the next step of finalizing the agreement.

Finalizing the agreement

• Review the agreement together with the client to ensure that all the details are correct and that everyone understands the terms of the agreement.
• Get the agreement signed by both parties, including any applicable witnesses.
• Make hard copies of the agreement for both parties and keep an electronic copy in a secure server.
• Make sure that both parties receive a copy of the signed agreement.
• Once all copies have been received, the agreement is considered finalized and you can move on to the next step.

Risk assessment

• Understand the general legal framework of contingency fee agreements in your jurisdiction
• Identify and assess the potential risks associated with the agreement, such as legal risks, financial risks, and reputational risks
• Assess the level of risk and decide how best to protect yourself against them
• Document the identified risks in the agreement
• Understand the legal implications of the different types of risk
• Check the agreement for any potential conflicts of interest
• Make sure the agreement protects both parties
• Once all risks have been identified and assessed, you can finalize the agreement and move on to the next step.

Identifying potential risks

• Identify potential risks that could occur during the course of the work to be done
• Brainstorm potential issues that could arise, including any external factors that could affect the project
• Consider how potential risks could be mitigated or eliminated
• Review any potential risks with the client
• Make a list of all potential risks and discuss them with the client to determine which ones should be addressed in the agreement
• When you have identified all potential risks and discussed them with the client, you can check this off your list and move on to developing a risk mitigation plan.

Developing a risk mitigation plan

• Review the identified risks and determine the best ways to mitigate them
• Consider using contracts, insurance, escrow, guarantees, indemnities and other methods to protect both parties
• Negotiate the terms of the risk mitigation plan with the other party
• Make sure that the risk mitigation plan is appropriately addressed in the Contingency Fee Agreement
• Ensure that the agreement is clear and does not contain any loopholes
• Once all the terms of the risk mitigation plan have been agreed upon and documented, you can move on to the next step of the guide, which is Termination of the Agreement.

Termination of the agreement

• Discuss how the contingency fee agreement may be terminated by either party
• Agree on the notice period for termination, the conditions for termination and the consequences of termination
• Ensure the contingency fee agreement contains a provision for the payment of costs incurred by either party prior to the termination of the agreement
• Specify in the agreement which party is responsible for the payment of any costs resulting from the termination of the agreement
• Confirm that, upon termination of the agreement, the client will be liable to pay any unpaid costs
• When all the above points have been addressed and agreed upon, the contingency fee agreement is ready to be signed and finalized
• Check this step off your list and move on to the next step - developing a risk mitigation plan.

Grounds for termination

• Determine what type of grounds for termination you will include in the agreement
• Consider any relevant state laws that may affect the agreement
• Outline any specific circumstances that would constitute grounds for termination
• Specify how the agreement can be terminated by either party
• Include any warranties or representations made by either party
• Include any applicable damages or remedies if the agreement is terminated
• Ensure that the agreement is in compliance with all applicable laws
• When you have completed all of the above steps, you can move on to documenting the termination.

Documenting the termination

• Draft a termination clause that outlines the conditions under which either party can terminate the agreement.
• Specify the consequences for terminating the agreement in the clause.
• Have both parties sign the termination clause.
• File the agreement and the termination clause for future reference.
• When both parties have signed the termination clause, the step is complete. You can now move on to the next step of the guide.

Dispute resolution process

• Review the terms of the agreement and decide on the best method for dispute resolution
• Consider any potential issues or deadlines that may be associated with the dispute resolution process
• Outline the dispute resolution process in the agreement in a clear and concise manner
• Make sure to include details on how the dispute resolution process should be initiated and who is responsible for initiating it
• Indicate how long the dispute resolution process should take
• Specify how the outcome of the dispute resolution process should be documented
• When complete, make sure both parties sign the agreement and keep a copy for their records

You’ll know that you completed this step when you have a fully documented dispute resolution process outlined in the agreement that both parties have signed.

Identifying potential dispute resolution methods

• Consider what methods may be best suited for resolving your dispute
• Examples of dispute resolution methods include: mediation, arbitration, negotiation, or litigation
• Consult with an attorney to determine which method is the most suitable for your particular situation
• Once you have identified the most appropriate method for resolving your dispute, you can check this off your list and move on to the next step.

Establishing a timeline for resolution

• Determine the amount of time you want to allocate for the dispute resolution process.
• Consider any applicable state or federal laws or regulations that would require a specific timeline.
• Discuss the timeline with the other party and make sure you both agree on it.
• Document the timeline in the contingency fee agreement.
• Once the timeline is established, the agreement is ready to be signed.

Documenting the dispute resolution process

• Draft a dispute resolution process outlining the timeline for resolution, the actions to be taken, and the potential outcomes
• Include a clause stating the agreement is subject to changes and modifications in the event of unforeseen circumstances
• Specify dispute resolution process and timeline in the contingency fee agreement
• Make sure to include a clause stating that any disputes between the parties will be resolved through arbitration
• When all relevant clauses and dispute resolution processes have been included, the contingency fee agreement is ready for review and signature.

FAQ

Q: What is a contingency fee agreement?

Asked by Jessica on March 15th 2022.
A: A Contingency Fee Agreement is a written agreement between a lawyer and their client that allows the lawyer to receive payment for their services only if they win the case. The amount of payment is usually a percentage of the settlement or judgement amount. This type of arrangement is beneficial to both parties, as it allows clients to access legal services even if they cannot afford to pay a large retainer or hourly fees.

Q: Are contingency fee agreements legal in the UK?

Asked by David on August 5th 2022.
A: Yes, contingency fee agreements are legal in the UK, provided that the agreement is in writing and meets certain statutory requirements. In particular, it must include the following information: the total percentage of any damages recovered which will be payable to the lawyer; the amount of expenses which will be deducted from any damages recovered; and a statement confirming that the client is responsible for any costs which are not recovered from the other side.

Q: Can I negotiate the terms of my contingency fee agreement?

Asked by Ashley on April 3rd 2022.
A: Yes, it is possible to negotiate the terms of your Contingency Fee Agreement with your lawyer. Depending on your particular circumstances, your lawyer may be willing to reduce their fee or alter any other terms in order to make the agreement more beneficial for you. It is important to discuss your options with your lawyer before signing any agreement.

Q: Are contingency fee agreements common in B2B litigation?

Asked by Matthew on June 30th 2022.
A: Yes, Contingency Fee Agreements are increasingly being used in B2B litigation as an alternative to hourly rate billing or fixed-fee arrangements. This type of agreement provides an incentive for lawyers to take on cases that may have uncertain outcomes and offer greater flexibility for clients who are unable to pay high upfront fees or retainers.

Q: What types of cases can be covered by a contingency fee agreement?

Asked by John on May 4th 2022.
A: Generally speaking, any type of civil action can be covered by a Contingency Fee Agreement, including litigation involving contract disputes, real estate transactions, intellectual property rights and employment law issues. However, not all lawyers offer this type of arrangement and it is important to check with your lawyer before entering into an agreement.

Q: How do I know if a Contingency Fee Agreement is right for me?

Asked by Mary on July 12th 2022.
A: A Contingency Fee Agreement can be an attractive option if you are unable to pay high upfront fees or retainers required for hourly rate billing arrangements. However, before entering into this type of agreement it is important to consider whether you would benefit from the outcome of the case (e.g., financial compensation) and whether you have sufficient funds available to cover any expenses that may arise during the course of litigation (e.g., court costs). Additionally, it is important to discuss your options with your lawyer and ensure that you understand all aspects of the agreement before signing it.

Q: Is it possible to terminate my Contingency Fee Agreement?

Asked by Michael on January 10th 2022.
A: Yes, it is possible to terminate your Contingency Fee Agreement at any time provided both parties agree or there are circumstances which allow termination under the terms of the agreement (e.g., if either party has breached its obligations). However, it is important to seek legal advice before terminating an agreement as there may be consequences such as additional costs or potential financial penalties for either party depending on the circumstances.

Q: How does a Contingency Fee Agreement affect my case costs?

Asked by Jennifer on October 21st 2022.
A: A Contingency Fee Agreement typically reduces upfront costs associated with litigation as lawyers typically front all expenses related to bringing a case (e.g., court filing fees) and only bill their client once they have received compensation from the other side (i.e., after they have “recovered”). However, it is important to note that some lawyers may require an up-front retainer fee before taking on a case and that clients may still be responsible for certain expenses even if they enter into a Contingency Fee Agreement (e.g., court costs).

Q: What should I look out for when negotiating my Contingency Fee Agreement?

Asked by Jessica on February 28th 2022.
A: When negotiating your Contingency Fee Agreement it is important to ensure that you understand all aspects of the agreement including what types of expenses will be deducted from any damages recovered; how much will be paid out in fees; how long will it take for payment; and what happens if either party breaches its obligations under the agreement (e.g., if either party terminates or delays payment). Additionally, it is important to check whether there are any limits or caps imposed on lawyers’ fees under local laws and regulations (e.g., in some jurisdictions there are limits imposed on how much lawyers can charge as a percentage of damages recovered).

Q: Are there different types of contingency fee agreements?

Asked by David on November 17th 2022.
A: Yes, there are different types of Contingency Fee Agreements depending on factors such as jurisdiction (e.g., UK vs USA vs EU), industry (e.g., technology or SaaS) and business model (e.g., B2B). Depending on these factors, different agreements may include different clauses such as caps on fees; restrictions on how much time lawyers can spend working on a case; limits on what types of expenses can be deducted from damages recovered; and so forth. It is therefore important to carefully review all aspects of an agreement before signing it in order to ensure that it meets both parties’ needs and expectations.

Q: How does US law differ when creating a contingency fee agreement compared with UK law?

Asked by Ashley on December 22nd 2022.
A: In general, US law allows attorneys more flexibility when entering into Contingency Fee Agreements than UK law does due to differences in legal regulations governing attorney-client relationships in each respective jurisdiction (e.g., US regulations often allow attorneys more freedom when setting their fees while UK regulations impose limits and caps). Additionally, US law also differs from UK law when it comes to certain aspects such as what types of expenses can be deducted from damages recovered; how much time attorneys can spend working on cases; and so forth – so it is important to ensure that you understand all legal considerations prior to entering into an agreement in either jurisdiction.

Q: What measures should I take when creating a contingency fee agreement with my lawyer?

Asked by Matthew on April 19th 2022.
A: Before entering into a Contingency Fee Agreement with your lawyer there are several measures which should be taken in order to ensure that both parties fully understand their obligations under the agreement and that everyone’s interests are protected throughout litigation proceedings – such as getting legal advice about all aspects of the arrangement; ensuring that all clauses comply with applicable laws; discussing potential scenarios which could arise during litigation; and so forth . Additionally, it is important for both parties to document any changes made during negotiations (including any changes made verbally) in order confirm their understanding prior to signing an agreement so that both parties have clear expectations going forward

Example dispute

Suing a Business with a Contingency Fee Agreement

• Plaintiff may need to establish an agreement between them and the business with regards to a contingency fee agreement.
• Depending on the specific laws and regulations of the jurisdiction, the contingency fee agreement may need to be in writing and signed by both parties.
• The lawsuit may be brought in cases where the business has failed to comply with the terms of the contingency fee agreement.
• Plaintiff must prove that the business acted in bad faith, or failed to abide by the agreement and caused harm to the plaintiff.
• Plaintiff must provide evidence of the actual damages caused by the breach of the agreement.
• Settlement may be reached through negotiation or in court, and the plaintiff may be entitled to damages and/or legal fees.
• If a court awards damages, the amount of the damages will be based on the terms of the agreement and the evidence presented.

Templates available (free to use)

Engagement Retainer Letter Contingency Fee Arrangement
Engagement Retainer Letter Contingency Fee Arrangement Georgia
Engagement Retainer Letter Contingency Fee Arrangement Illinois
Engagement Retainer Letter Contingency Fee Arrangement Massachusetts
Engagement Retainer Letter Contingency Fee Arrangement New Jersey
Engagement Retainer Letter Contingency Fee Arrangement Ohio
Engagement Retainer Letter Contingency Fee Arrangement Pennsylvania
Engagement Retainer Letter Contingency Fee Arrangement Plaintiff Side
Engagement Retainer Letter Contingency Fee Arrangement Texas
Recruiting Services Contract Contingency Fee Client Friendly

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